Fed Hikes Federal Funds Rate Up a Quarter
Point

The decision to raise rates came at a time when the FOMC
sees an expansion at a “solid pace” of both output and
labor market conditions and does not foresee any adverse
reaction in the markets to the quarter point increase.
“The Committee believes that, even after this action, the
stance of monetary policy remains accommodative and,
coupled with robust underlying growth in productivity, is
providing ongoing support to economic activity,” the FOMC
said in its customary
announcement news release
.

The Fed’s decision marks the first rise in interest
rates in four years.
The previous 1% rate was the lowest level for the federal
funds rate in 46 years.

Notable among the language of the FOMC’s announcement is
the continued use of the “measured language” as the Fed
keeps a watchful eye on inflation: “With underlying
inflation still expected to be relatively low, the
Committee believes that policy accommodation can be removed
at a pace that is likely to be measured.”

Speaking on CNBC shortly after the FOMC’s announcement,
Bill Gross, Chief Investment Officer at PIMCO, reiterated
this concern with regards to bond investments, pointing to
inflationary indicates as the real measure of bond trading
in the short-term. “I think my sales of bonds in the future
depends on the pace of inflation.”
Gross added that in the immediate term, that outlook is
favorable, because of his observations that the bond market
has already anticipated as much as 200 basis points of Fed
tightening.

Interest rate policy is important for plan sponsors
because many plans’ loan interest rates are tied to the
Prime Rate.